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Interest in the Faroese offshore may be buoyed by exploration success in adjacent West of Shetland waters

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The Faroe Islands will launch a joint licensing round this month with the UK, targeting increased exposure through the initiative with the aim of sparking renewed exploration interest in waters along its maritime border with Britain. But the complex geology in the area and its remote location may still dampen enthusiasm among energy firms that are averse to riskier plays.

The 5th Faroese licensing round, which will be released jointly in mid-July with the UK Oil and Gas Authority's (OGA's) 32nd round on an unconfirmed date, will offer 9.4 sq km² of offshore blocks. Detailed seismic data kits, favourable income tax conditions and lower application fees as cheap as DKK150 ($22) for a preparatory study, have been wrapped into the package.

The Faroese government also prepared a legislative proposal this spring for the round, backed by parliament, that aims to establish a legal foundation for future commercial discoveries of oil and gas reserves.

"I consider the coordination between the UK Oil and Gas Authority and Jarðfeingi, its Faroese counterpart, of a licensing round covering both sides of the border to be a very significant step in our efforts to find hydrocarbons in the Faroese maritime area", Poul Michelsen, minister of foreign affairs and trade, told Petroleum Economist.

"Our two countries have a long tradition of working and trading together and we are now preparing to write a new chapter in this history by jointly meeting the challenge of realising the energy potential of the Atlantic Margin," he said.

The Faroese have estimated that up to 10bn bl/boe in potential recoverable oil reserves could be present in its waters, but since the first licensing round was launched in 2000, hopes of an oil and gas bonanza that would enrich the tiny population of 49,000 have largely faded following lacklustre drilling results.

Britain's BP, Norway's Equinor and Italy's Eni all took licenses that year to prospect Faroese waters, but only nine wells were drilled in the years since, with just four showing traces of hydrocarbons. The last license was relinquished back in 2016.

Basalt of the earth

Barbara Biskopstø Hansen, geologist and head of marketing at the Faroese Geological Survey, says the time has come for majors and smaller independents to take another look at the Faroes.

"This area must surely be regarded as underexplored, and the gigantic structures in the area indicate great potential for large discoveries," she says. "Although no commercial finds have been made so far, a working hydrocarbon system has been proven to exist."

The joint launch could be boosted by the recent exploration and production successes in the closely adjacent West of Shetland (WoS) region, as well as the hydrocarbons extraction infrastructure being built there as a result.

First oil was achieved last November from BP's Clair Ridge development, which holds an estimated 640 mn boe. FID has been set for 2022 for the 300mn boe Rosebank field, discovered in 2004 by Chevron and now operated by Equinor and partners.

An exploration upswing in the Wos has also led to significant finds, including Total's 1tn ft3 Glendronach gas discovery last September, and 70 blocks have been awarded there by the OGA over the last two years.

"There are similarities between the UK and Faroe area of the Faroe-Shetland Basin and pre-volcanic possibilities such as the Anne-Marie structure, which was drilled in 2010 encountering three intervals of gas with a total thickness of 350 meters," says Biskopstø Hansen.

Volcanism downside

However, while there are geological similarities and some of the ridges of those major finds run clearly on into Faroese territory, there is also the negative presence of large volumes of Palaeogene basalt overlying the primary prospective levels on the Faroese side. The messy, thick basalt conditions found in this volcanic region can obscure much of the seismic signal that has proved so critical in WoS finds.

Despite the close proximity of the Scottish fields, the border was not drawn arbitrarily, but was demarcated in 1999 based on the geological differences that mark the start of the basalt region—it is a "continental shelf boundary".

The Faroese accept that volcanism—the process where deep magma erupts onto the surface—is an issue, but say new technologies can overcome the geological challenges.

"When it comes to drilling the basalts, in the past decade significant improvements were made by operating oil companies drilling the wells. Due to their efforts, the drilling speed has done from one metre per hour to 10 metres per hour". She also points out that improved technologies could be used to reprocess existing seismic 2D and 3D data sets.

While innovation and joint promotions can play a part, ultimately the fate of the Faroe Island's oil and gas future will rest on its ability to present energy firms with a powerful value proposition. This is a tough ask in today's cost climate—and something that the country's politicians acknowledge.

"Due to the crisis in the hydrocarbon industry, there has not been much exploration in general for the last 5-6 years, and this period has especially been hard for a frontier area such as the Faroes," added foreign minister Michelsen.